high yield strategy

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High Yield Strategy

2017

Strategic Income Management (SiM)Value Driven, Income Focused

SiM: Utilizing the Same High Yield Team and PhilosophySince 1998 to Achieve Top Decile Performance

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• Management team with 30 years industry experience, have worked together for 25 years

• Team has successfully employed the same strategy for 18 years in dedicated high yield portfolios across multiple business cycles

• Team previously managed high yield portfolio for 11 years at Principal, growing assets to over $2.4 billion and achieving top decile performance across 3-, 5-, and 10-year periods, as ranked by Morningstar

• Total firm AUM $1.40 billion• American Beacon SiM High Yield Opportunities Fund- $1.25 billion• City of Philadelphia Board of Pension & Retirement- $90 million• Cornerstone Advisors Income Opportunities Fund- $55 million• SiM High Yield UCITS Fund - $30 million

• Focused on one strategy applied across all portfolios

• Based in Seattle, Washington

OrganizationAn experienced team with a long history


Firm founded 2010, 100% employee owned

Management CommitteeStrategic Management Income, LLC

Julia LandaOperations Specialist

Management CommitteeStrategic Management Income, LLC

Brian Placzek, CFAPortfolio Manager

Mgmt. Committee Member

Gary Pokrzywinski, CFALead Portfolio Manager


Tim Black, JDCCO, CEO


Kevin PowerAnalyst/Trader

Phil BurtonOperations Associate

Ryan Larson, CFASenior Analyst

SectionTwo:

StrategyOverview

FOR INVESTMENT PROFESSIONAL USE ONLY

What makes SiM US High Yield unique?A distinctive approach to High Yield investing

Traditional US High YieldApproach:• Pool of specialized analysts compete to get

representation of their names in the portfolio, ratherthan focus on the overall good of the portfolio

• Herd mentality: If things blow up, you cannot beblamed for doing what everyone else is doing

• Hundreds of names in a portfolio that forces theminto being an index fund, merely making minoradjustments to industry weightings

• Short term focus chasing the latest trend, resulting in higher turnover

The SiM US High Yield Approach:• Consistency – The management team hasbeen

together for 24 years, managing HY together for 17, and invests with the whole portfolio in mind

• Core focus on long term High Yield specific industry and company drivers, allowing the team toconcentrate its resources and the portfolio on thoseindustries and companies best suited to High Yield, resulting in a core portfolio that is generally less cyclical

• Astrategythat exploits long-term opportunities inout-of-favor industries or non- traditional HY sectors

• AUM - small enough to capitalize on the favorable riskpremia offered in small issuers

• Lower average turnover that exploits long-term trendsand facilitates management of the portfolio

• A more focused portfolio of 70 to 100 names -well-diversified and easily managed


SiM’s Unique Investment ApproachA distinctive approach to High Yield investing

Out of Favor Industries & Non-Traditional High Yield:Opportunistic – Companies better able to survive anextended restructuring in the sector

The Portfolio

Principle One:Identify long term trends and themes Once long term trends &

industries are identified,SiM performs acomprehensive, company-level analysis to determinequality and construct thecore portfolio. We thenopportunistically add Out-of-Favor and Small CapIssuers.

CORE PORTFOLIO

65-100%

SMALL CAPISSUERS

~33%

Small Cap Issuers:Outstanding bonds <$500m;Favorable risk premia - Better companiesignored by large investors

Out-of-Favor~33%

PrincipleTwo:Focus on the right industries

Principle Three:Analyze as a CFO/owner


The Core PortfolioBuilding Our High Yield Portfolio

Our three core principles - Identifying long-term trends, focusing on the ”right industry,”and performing a “CFO-level analysis” – are applied to create the core of the portfolio.


This results ina portfolio that:• Tends to be less cyclical

• Provides better downside protection

• Provides more alpha over the long runSMALL CAPISSUERS

CORE PORTFOLIO

65-100%

Out-of-Favor SectorsSupplementing the core of the portfolio

SiM’s Principles of Investing in Out-of-Favor Sectors:

• Invest in sectors supported by long term trends andwith a pathway to restructuring.• Usually this restructuring is through removalof excess

capacity.

• Invest with a long-term investment horizon.• Restructuring/rebalancing may take two or more years.

• Invest in companies with the product, management,cash flow,and balancesheets to endure• Companies should be strong enough to survive through

extended periods that may be required for the sector toregain “health”.

CORE PORTFOLIO

65-100%

SMALL CAPISSUERS

Out-of-Favor~33%


Out-of-Favor SectorsSupplementing the core of the portfolio

Advantages of Investing in Out-of-Favor Sectors:

• Even cyclical/capital-intensive industries can have very favorable risk/reward ratios when they fallout of favor.

• Non-traditional high yield securities (convertible bonds,emerging markets, REITs,etc.) havesmaller discrete pools of buyers that periodically abandon them.• When these sectors lose their naturalbuyers, their yields can offer extraordinary value at rates in line with High

Yield bonds.

• Non-traditional high yield securities have a lower correlation to traditional high yield, potentially reducing overall risk in the portfolio.

• Towards the end of the business cycle, as investors chase yields and drive down spreads, there isvery little that is out-of-favor.• At that time the strategy is generally pushed back into the core portfolio. The less cyclical core is better suited

to weather downturns that tend to occur at this time of the cycle.


Some Out-of-Favor SectorsSupplementing the core of the portfolio

Examples of past investments in Out-of-Favor sectorsThroughout cycles over the past 18 years, the SiM team has consistently exploitedout-of-favor opportunities.

Historically, approximately 1/3of the portfolio has been invested in a mix of out-of- favor sectors.


1998 Asian Crisis2000 Tech Bubble2001 9/11 - Gaming2002 Telecom Bubble2002 Oil collapse2003 Brazil - Lula election2004 Healthcare REITs2006 Airlines2008 Auto collapse2008 Financial Crisis2011 European Financial Crisis2012 Airlines2014/15 Oil collapse

Investing in Small Cap IssuersRounding out the portfolio

Advantages of Investing in Small Cap Issuers(w/ total bonds outstanding <$500m)

• In the BAML High Yield Index small cap single-Bs offer anOAS significantly higher than Large Cap single-B category.

Nature of Small Cap• Deep pool – Comprise more than third of issuers in the

Index, greater than the number of large cap issuers

• Institutional investors tend to ignore small cap – they cannot take a large enough position to make a significant contribution to their oversized portfolios

• Rating agencies penalize companies just for being small

Around a thirdof the portfolio—acrossboth Core and Out-of-Favor names —isgenerallyinvestedinSmallCapto capturethefavorablespread

CORE PORTFOLIO

65-100%


SMALLCAP ISSUERS

• Team has managed liquidity with small cap for 18 years

• SiM trader with 80+ issuers likely more in touch with buyers/sellers than large funds with hundreds of names

• 46% of the U.S. high yield market is held by the top 20 investment companies. Given herd mentality, probably an advantage to being “off the beaten path”.

Liquidity

The Resulting PortfolioOur distinctive approach to High Yield investing

The result is a portfolio and investment strategy that seeks to:


• Add alpha by investing in out-of-favor industries that are viable in the long run and have a pathway to rebalancing

• Add alpha by investing in non-traditional high yield--sectors of the capital markets that are forsaken by their traditional buyers and offering yields competitive to High Yield

• Exploit the favorable risk premia to be found in high quality small issuers

CORE PORTFOLIO

65-100%

SMALL CAPISSUERS

~33%

Out-of-Favor~33%

• Exploit long term trends that put the wind at the back of industries

• Overweight the “right” industries, underweight and even zero-weight those ill suited to high leverage

• Find sustainable businesses with a competitive advantage, sufficient cash flows, adequate capex, and an appropriate capital structure

SiM US High YieldPortfolio Construction

Targeted Universe: Full High Yield universe, Senior Loans and other non-traditional investments such as

REITs, preferreds, convertible bonds, and EM debt.

HighYield Bonds: Minimum of 80%

Liquidity: Buy no more than 10% of an issue.

Sector Allocation: At minimum invested in 15 industries; maximum 25% in one industry. Some industries inthe Index may have zero-weightings in the portfolio.

Diversification: Limit of5% in one issuer, but practice has generally been around 3% or less

Duration: +/- 15% of the Index duration

Foreign Currency Exposure: Unhedged exposure to non-USD limited to 5%

Cash: Minimize cash to levels sufficient for liquidity. No tactical allocation to cash.

Portfolio Construction


1Performance reflects the unannualized performance from March 1, 2011 to December 31, 20112 Composite inception date March 1, 2011, annualized returns3Reflects number of accounts in composite at end of period. One account was removed for the months of March, 2017 and September, 2017 due to a Significant Cash inflow and outflow, respectively, in those months. That account comprises approximately 7% of total Composite assets. The returns for the removed account are included in all periods, with the exception of the two months it was removed. 4 For periods with less than 36 months of composite performance, no 3-year standard deviation measurement is available.5 Information is not statistically meaningful due to an insufficient number of portfolios in the composite for the entire year. During theperiods presented with multiple accounts, one account represented approximately 90-95% of the aggregate composite assets. This large account is an open end mutual fund, and as such, may experience more frequent, and more significant, cash flows than other non-open end mutual fund accounts in the composite.

Strategic Income Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Strategic Income Management, LLC has not been independently verified.

Strategic Income Management, LLC is an independent SEC registered investment adviser. The firm maintains a list of composite descriptions, which is available upon request.

Composite Strategy and Fee Disclosures:The Strategic Income Management High Yield Composite (the “High Yield Composite”) contains all discretionary fee paying accounts that invest, under normal circumstances, at least 80% of the their net assets in non-investment grade securities and/or financial instruments that provide exposure to noninvestment grade securities. Non-investment-grade securities are securities rated at or below Ba or BB by Moody’s, S&P or Fitch or, if unrated, determined by Strategic Income Management, LLC to be of comparable quality. The non-investment grade securities in which accounts in the High Yield Composite may invest include: corporate bonds,

High Yield CompositeSeptember 30, 2017

Total Assets (millions) Number of Accounts3

Composite Performance Benchmark Annualized3-Year StandardDeviation4

Internal Composite

Dispersion5

Period Firm Composite Gross Net Composite Benchmark

Annual Returns

2016 $1,296.45 $1,296.45 3 17.27% 16.83% 17.49% 5.41% 6.11% N/A

2015 $ 741.47 $ 741.47 2 -2.95% -3.34% -4.64% 5.13% 5.35% N/A

2014 $ 905.43 $ 760.51 2 5.24% 4.81% 2.50% 5.23% 4.50% N/A

2013 $ 658.79 $ 594.42 2 8.64% 8.19% 7.42% N/A N/A N/A

2012 $ 474.48 $ 418.62 1 21.65% 21.11% 15.58% N/A N/A N/A

20111 $ 82.39 $ 39.96 1 0.25% -0.12% 0.88% N/A N/A N/A

One-Year Return

09/30/2017 $1,385.35 $1,258.47 2 9.64% 9.24% 8.49%

Three-Year Return

09/30/2017 $1,385.35 $1,258.47 2 6.57% 6.15% 5.68%

Five-Year Return

09/30/2017 $1,385.35 $1,258.47 2 7.81% 7.38% 6.27%

Since-Inception2 $1,385.35 $1,258.47 2 8.29% 7.85% 6.69%

convertible securities, preferred stock, bank and senior loans, securities of foreign issuers, emerging market debt and Rule 144A securities. Some accounts in the High Yield Composite utilize currency futures to hedge nonU.S. dollar currency exposure for securities denominated in non U.S. dollars. Some accounts may also utilize credit default swaps (CDS) on a limited basis. Neither currency futures nor CDS are major components of theHigh Yield strategy or of accounts in the High Yield Composite. Portfolios in the High Yield Composite may contain international securities. There are no known material differences in exchange rates or valuation sources among the portfolios in the High Yield Composite. Specific investment guidelines may differ between accountsin the High Yield Composite, and therefore not all accounts in the High Yield Composite will hold the same securities or the same weightings in the same securities.

For comparison purposes the High Yield Composite is measured against the BofA Merrill Lynch US High Yield Master II Index (the “Benchmark”). The High Yield Composite was created November 1, 2012. The inception date of the High Yield Composite is March 1, 2011. Returns are presented gross and net of management fees and include the reinvestment of all income. Net performance was calculated using the actual sub advisory management fees applicable to those accounts included in the High Yield Composite, applied monthly. Actual sub advisory management fees for the accounts in the High Yield Composite vary depending upon account size and other factors, and currently range between 0.50% to 0.30% on amounts over $1 billion. The standard investment advisory fee applicable to non-mutual fund accounts in the High Yield Composite is 0.75%. Actual investment advisory fees incurred by clients may vary and returns will be reduced by investment advisory fees actually incurred. Further information regarding investment advisory fees is described in Part 2a of the firm’s Form ADV.

The U.S. Dollar is the currency used to express performance. The minimum account size for the High Yield Composite is $25 million.

Benchmark Disclosures:The BofA Merrill Lynch US High Yield Master II Index tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must hav e a below investment grade rating (based on an average of Moody’s, S&P and Fitch). The country ofrisk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the US or a Western European nation. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia,New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $100 million. Original issue zero coupon bonds, 144a securities, both with and without registration rights, and pay-in-kind securities, including toggle notes, qualify for inclusion. Callable perpetual securities qualify provided they are at least one year from the first call date. Fixed-to-floating rate securities also qualify provided they are callable within the fixed rate period and are at least one year from the last call prior to the date the bond transitions from a fixed to a floating rate security. Eurodollar bonds (USD bonds not issued in the US domestic market), taxable and tax exempt US municipal, warrant-bearing, DRD-eligible and defaulted securities are excluded from the Index.

Regulatory Disclosures:Performance shown represents total returns that include income, realized and unrealized gains and losses. Gross returns shown do not reflect the deduction of investment advisory fees. Investment returns will be reduced by investment advisory fees and other expenses incurred during portfolio management. Past performance is not indicative of future results.

Methodology Disclosures:Gross performance is presented net of transaction costs. Net of fee performance was calculated using actual fees applied monthly. High Yield Composite performance is presented net of foreign withholding taxes on dividends, interest income, and capital gains. Withholding taxes may vary according to the investor’s domicile. High Yield Composite returns represent investors domiciled primarily in the United States. Strategic Income Management has defined a Significant Cash Flow as 15% of a portfolio’s value at the time of the cash flow.Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.

Variance Disclosures:The composite dispersion presented is an asset-weighted standard deviation calculated using accounts in theHigh Yield Composite the entire year. During the periods presented with multiple accounts, one account represented approximately 90-95% of the aggregate composite assets. This large account is an open end mutual fund, and as such, may experience more frequent, and more significant, cash flows than other non-open end mutual fund accounts in the composite.

The 3-Year Standard Deviation represents the annualized standard deviation of actual High Yield Composite and Benchmark returns, using the rolling 36-months ended each year-end. The 3-Year Standard Deviation of the High Yield Composite and the Benchmark returns are not presented for some periods because the High Yield Composite strategy had less than three years of history for those periods.

Supplemental Information To

Strategic Income Management, LLC High Yield Composite Performance Presentation

The following information is supplemental to the Strategic Income Management, LLC High Yield Composite Performance Presentation.

Prior Firm Performance

Prior to founding Strategic Income Management in October of 2010, Gary Pokrzywinski and Brian Placzek were, respectively, the Portfolio Manager and Head of Fixed Income/Research for the Principal High Yield Fund (the “Prior High Yield Fund”) from April 8, 1998 until May 4, 2009. Performance results for the Prior High Yield Fund during their management of that fund are set forth below. Peer group was comprised of between 270 members in 1998 to 476 members in 2009.

1Results for 2009 are through 5/4/2009 2Results for 1998 are from 4/8/1998

Prior High Yield Fund Performance (Class A)

1Results areas of 5/4/2009

PriorHighYieldFundPerformance(ClassA)

Year Fund at NAV Lipper PeerGroup Median

Lipper Peer Group% Rank

20091 14.6% 14.8% 53%2008 -21.9% -25.0% 24%2007 5.7% 1.9% 2%2006 14.5% 9.9% 3%2005 6.5% 2.4% 3%2004 11.4% 9.8% 17%2003 28.1% 24.0% 23%2002 3.7% -1.1% 10%2001 3.1% 2.9% 48%2000 -1.5% -7.6% 14%1999 12.0% 4.2% 7%19982 -3.3% -4.1% 41%

Time Period1 FundatNAV

LipperPeer GroupMedian

Annualized Difference

Cumulative Difference

LipperPeer Group%Rank

1 Year -11.1% -14.6% 3.5% 3.5% 21%

3 Year 1.2% -2.2% 3.4% 10.5% 3%

5 Year 5.1% 1.4% 3.7% 19.9% 1%

10 Year 6.2% 2.5% 3.7% 43.8% 3%

Performance Recognition for the Prior High Yield Fund

Performance figures and/or performance recognition set forth above are for the Principal High Yield Fund managed by Mr. Pokrzywinski and Mr. Placzek during their tenure at Edge Asset Management. NAV figures and Lipper rankings are based on total return and the returns assume reinvestment of dividends, and do not reflect any applicable sales charge, which, if included, would lower the total return. Charts are for comparison purposes only. Fund inception was 4/8/1998. 2009 results are through 5/4/2009. Morningstar rankings are through 3/31/2009. Past performance is no guarantee of future results. All investing carries the potential for loss.

Sources: Morningstar and Lipper

.

Gary J. Pokrzywinski, CFAMr. Pokrzywinski is the Lead High Yield Portfolio Manager for SiM. He has 28+ years of experience in the fixed income financial markets. He currentlymanages the Morningstar 5-star*, American Beacon SiM High Yield Opportunities mutual fund, and prior to founding SiM managed the Morningstar5-star**, Principal High Yield mutual fund from its inception in April 1998 to May 2009. Prior to SiM, He was the CIO and a High Yield Portfolio Manager forEdge Asset Management (and its predecessor), an affiliate of Principal Financial Group. He worked for Edge and its predecessor from 1992 to 2009.Prior, Mr. Pokrzywinski was an investment officer/portfolio manager for Firstar Investment Services Co. He received a bachelor's degree infinance and management information systems from the University of Wisconsin - Milwaukee. Mr. Pokrzywinski earned the right to use the CharteredFinancial Analyst designation in 1989 and is a member of the CFA Society of Seattle.

Brian L. Placzek, CFAMr. Placzek is the High Yield Portfolio Manager for SiM. He has 30+ years of experience in investment management and financial analysis,and currently manages the Morningstar 5-star*, American Beacon SiM High Yield Opportunities mutual fund. Prior to SiM, Mr. Placzek was Head ofFixed Income/Research at Edge Asset Management, an affiliate of Principal Global Investors. At Edge he worked with Mr. Pokrzywinski on the PrincipalHigh Yield Mutual Fund from its inception in 1998 until the Mr. Pokrzywinski’s departure in 2009. Mr. Placzek worked at Edge (and its predecessor) from1990 to 2010. Prior to Edge he had been at Washington Mutual Bank, where he worked as an investment grade and high yield bond analyst/trader. Mr.Placzek earned the right to use the Chartered Financial Analyst designation in 1994, is a member of the CFA Society of Seattle and received a bachelor’sdegree in liberal arts from Seattle University.

Ryan C. Larson, CFAMr. Larson is a Senior Investment Analyst for the SiM High Yield Team. Mr. Larson is responsible investment research and analytics. He has 8 years ofexperience in investments. Prior to SiM, Mr. Larson was a research analyst at Caelum Capital, a Los Angeles based equity long-short hedge fund, from2009 to 2010. Before Caelum Capital, Mr. Larson worked under the direction of a Managing Director at Wells Fargo in Seattle, Washington from 2008 to2009. Mr. Larson earned the right to use the Chartered Financial Analyst designation in 2012 and is a member of the CFA Society of Seattle. Mr. Larson isalso a member of the Chartered Alternative Investment Analyst Association (CAIA). Mr. Larson graduated with honors from Brown University with abachelor’s degree in Commerce, Organizations and Entrepreneurship.

*Data provided by Morningstar. SHOIX (institutional class) **CPHYX (load waived) 5-star ranking from 11/05 to 5/09.CPHYX 4- or 5-star rating from 4/03 to 5/09. Past performanceis no guarantee of future results.

Biographies


Tim Black, JDMr. Black is the Chief Executive Officer and Chief Compliance Officer for SiM and is responsible for day to day operations and SEC compliance matters. Mr.Black has 16+ years of experience in regulatory and compliance matters in various roles in the investment industry. He is a former partner of Integra Ventures,a federally licensed Small Business Investment Company (SBIC), where Mr. Black was responsible for regulatory compliance and oversight management forthe firm. Mr. Black is an attorney whose prior practice focused on corporate and securities matters, including issues relating to investment advisers and brokerdealers. Mr. Black holds a BA from Colorado College and a JD, with honors, from Seattle University.

Julia H. LandaMrs. Landa is an operations specialist for SiM and is responsible for monitoring day-to-day high yield portfolio operations, reporting and compliance. Prior tojoining SiM in 2015, Mrs. Landa was an energy risk control and credit analyst at Puget Sound Energy Inc., a Bellevue based utility company. Prior to PSE,Mrs. Landa was for five years with Union Bank of Israel, the sixth largest Israeli bank, where she was an economist in the Controls and Risk ManagementDepartment, responsible for monitoring derivatives market risks and trading activity, as well as the bank’s proprietary asset reporting and SOXcompliance. Mrs. Landa has a B.A. in Economics from Tel Aviv University and an M.A. in Business Economics from Bar-Ilan University, Israel.

Kevin PowerMr. Power is a high yield analyst and trader for SiM. Prior to joining SiM in 2016, Mr. Power worked as a business loan officer at Business Impact NW, a non-profit Community Development Financial Institution, where he underwrote and serviced business loans. Prior to Business Impact NW, from 2006-2015, Mr.Power worked at Bank of America, in various roles, but most recently as a Banking Center Manager. Mr. Power holds a B.S. in Economics from the Universityof Washington.

Phil BurtonMr. Burton is an operations associate for SiM and is responsible for monitoring day-to-day high yield portfolio operations, reporting and compliance.Prior to joining SiM in 2017, Mr. Burton was a loan servicing assistant at Washington Federal Loan Servicing Seattle. Mr. Burton has a BA inEconomics from Western Washington University.

Biographies (cont.)

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